Jefferies: China’s FeSi Parabolic Rise; GSM Pursuing EU Trade Cases?

Key Takeaway
China’s parabolic rise in FeSi prices, up +$0.27/lb to $0.94 sequentially for the week ending December 8, 2017, could ripple through Western markets if sustained, however, we believe some partial correction is imminent. GSM may be pursuing EU Si trade cases, but we await confirmation. However, if pursued, it may present material upside to Euro prices. We remain positive on Si metal prices with incremental US upside probable in early 2018.

China’s Parabolic FeSi Ascent due to Environmental Crackdown: China’s FeSi price has risen sharply over the past week, up +$0.274/lb sequentially to $0.941 (export, FOB including 20% tariff) for the week ending December 8, 2017. Western prices edged higher as well with the US price of FeSi gaining +$0.032/lb to $0.741 and Europe up +$0.012 to $0.747 over the comparable period. Environmental inspections curtailed FeSi supply within China as producers were reportedly forced to temporarily halt production in the Ningxia province, with the government reportedly cutting electricity to some smelters forcing compliance. Inspections are supposed to continue through late December, with the government determining what capacity may resume production at month’s end. In our view, while the spike in Chinese FeSi may ripple through Western markets if sustained for any prolonged period, ultimately there is likely some pullback from current levels as irrational exuberance subsides. In fact, as of Monday, Chinese producers were offering 75% FeSi at RMB 10,000-10,500/t ($0.69-0.72/lb for domestic sales), down slightly from last week’s RMB 10,500-11,000/t ($0.72-0.75/lb). Nevertheless, akin to China’s ramp to curtail production capacity in other commodities such as steel, over the course of the next year production disruptions in silicon, FeSi and other alloys leading to temporary spikes and ensuing corrections in pricing should be expected.

Silicon Prices in China Inflect with Western Largely Stagnant: China’s Si metal price inched marginally higher by +$0.005/lb sequentially to $0.819 for the week ending December 8, 2017, marking an inflection following five weeks of gradual erosion. Comparatively, Western prices remained largely stagnant. The US Si price remained sequentially steady at $1.389/lb for the week ending December 8, 2017. Forward (90-day) prices were also unchanged at ~$1.40-1.45/lb amid a lull in demand. Slower demand towards year-end is unsurprising given seasonality, and we also note Wacker’s TN facility remains offline due to an explosion in early September, with a restart targeted for early 2018. Further, elevated July-September Si imports likely present a modest ongoing supply overhang. As these factors abate in early 2018 we expect it may present incremental upside to US Si prices. The Euro market was marginally lower with Si prices down -€0.002/lb sequentially to €0.981/lb over the comparable period on a Euro denominated basis and off by -$0.014/lb to $1.155 on a USD basis. Similar to the US, spot demand languished during the seasonally weak period prompting lower offer prices.

Potential EU Si Dumping Case: Industry press reported a potential EU Si metal import dumping case may emerge against Brazil and Bosnia, but official notification may not come out until early 2018. As of 2015, Brazil accounted for 12% (47.8K tonnes) of EU Si imports with Bosnia at 4% (17.8K). Thus far in 2017 (YTD July) the EU imported 37.4K (19% of total) tonnes from Brazil and 18.2K (9%) from Bosnia. We have yet to hear official confirmation from GSM or the EU, but note, if such a case should move forward, it could present material upside to EU prices and stymie emergent import pressure from Brazil as it is pushed out of the US market due to trade cases previously initiated.

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